Will eurozone tariffs be the straw to break the labour market’s back?

We have revised our Eurozone labour market forecasts to incorporate the impact of US tariffs, and now expect employment growth to come to a near standstill this year. Although risks to the labour market are tilted to the downside, various indicators continue to suggest that a serious downturn will be averted.

What you will learn:

• Hiring intentions point to employment gains slowing this quarter from the probable 0.2% rise in Q4. We expect employment will flatline as industry payroll cuts will accelerate. By end of 2025 we forecast employment will have grown by a meagre 0.2%, the weakest rise since 2013 outside the pandemic.
• Stark differences between countries and sectors make it difficult to discern an underlying pan-European trend. But we think solid expansions driven by strength in services and falling structural unemployment in Southern Europe are broadly offsetting the cyclical and structural headwinds faced by more industry-dependent countries, such as Germany and Finland.
• There are two immediate and interconnected downside risks. Firms could stop hoarding labour as they aim to increase profitability amid faltering hopes of a recovery in demand. And the recovery itself could disappoint as consumers remain stingy amid rising unemployment worries, particularly when tariffs start to bite or if interest rate cuts disappoint expectation.